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Nasdaq 6000? Not Until the Indicators Get Back in Line

The Chartist says even Nasdaq 5000 may not stick this time. Also, fewer stocks on the NYSE are hitting new lows.

March 10, 2000

No sooner did the

Nasdaq

cross 5000 than everyone was asking when we'd be at Nasdaq 6000. No one stopped to assess the move to 5000. No one stopped to ask

if

we'd go to Nasdaq 6000. They only asked when.

Now, I wouldn't disagree with a move to Nasdaq 6000, nor would I agree. What I'd say is what I said the other day: I do not believe this run through 5K is going to hold the first time up. Eventually we will likely go through convincingly, but I don't believe the Nasdaq's got the oomph to do so right now. This recent rise looks more exhaustive than fresh.

The first reason is that by the end of trading on Monday, the Nasdaq will be short-term overbought. And while I'm still giving it a chance to reach a greater overbought reading than the previous ones (a higher high), it has now managed to get through 5000 on less momentum than before. And it's not just the oscillator that is showing a lower high. The Nasdaq's momentum indicator is also showing a lower high.

In addition to the lessening momentum, there are fewer stocks participating in this rise than there were a week or so ago. Stocks making new 52-week highs were at 428 on March 1. Since then the Nasdaq Composite has rallied over 250 points and surged forward through 5000, with only 245 stocks making new highs. That tells us that many stocks are already resting. And yes, this is only a rest, not a change in trend.

Of course, volume is an important factor here too. And since March 1, volume on the Nasdaq has been slipping -- not enough to make a huge fuss over, but enough to take a look at the chart. You can see the moderate drop in volume, which wouldn't be so noticeable if the market were correcting, either sideways or down, but the contraction in volume has come for the past 300 points on the upside!

Since this big Nasdaq run began last fall, Nasdaq volume has typically dropped off during corrections, which is standard bullish action. However, at point A on the chart, the Nasdaq was stretching to new highs at the same time that volume was contracting, not expanding. This ultimately led to the January corrections. The current situation is marked at point B, where the Nasdaq Composite has run with lighter volume each day. I believe this is part of the path that leads us to a correction.

It seems to me that there are enough reasons to believe the Nasdaq will offer us a better buying opportunity after these indicators move back in line.

Over on the

New York Stock Exchange

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, there are some very minor changes taking place in the downward trend we've been seeing. As I pointed out in yesterday's

column, the biggest change is the shrinking number of stocks making new lows. But there's another change too: The

McClellan Summation Index

. I typically use this indicator as a show of direction. If it's rising, we usually find the market rising and vice versa. But what I've noticed lately is that this indicator, which is based on the advance/decline line, has not made a lower low, but the cumulative A/D line has. Perhaps this is telling us there really are stocks holding in the face of the bear market on the NYSE.

And if we look at the chart of the

S&P 500

, there is quite a clear channel line. I don't know if we will break out through the upside of that channel line over the next few days, especially since we're going to be moderately overbought on the NYSE by Monday. I can see, however, that this recent selloff is the first time since January that this chart did not come all the way back to the lower channel line, which tells me it's not as weak as it has been.

The S&P chart has plenty of resistance all the way up, as do almost all those Old Economy stocks that help make up this index, but there is hope now. The very high volume we've seen in the past month in individual stocks (see my March 3

column) tells us there has been a great deal of dumping in these names. That's the first step to finding a bottom.

As both markets will reach overbought readings by Friday or Monday at the latest, I expect we will get the downside reaction we usually get in the week before the

FOMC

meeting.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback at

KPMHSM@aol.com.